How to Build a Retirement Income Portfolio in Australia

 

I had a client come in last month, just sold his business for $3.2 million, rolled it into super, and asked me the question I hear all the time: “Ben, how do I actually turn this into income I can live on for the next 30 years?”

Fair question. You spend 30-40 years building wealth, and then suddenly you’re supposed to flip the switch and start drawing it down. It’s like training for a marathon and then being told to run backwards. The skillset is completely different.

Building a retirement income portfolio in Australia isn’t just about picking a few dividend stocks and hoping for the best. It’s about constructing a system that generates reliable cash flow, protects against inflation, manages tax efficiently, and most importantly it doesn’t run out before you do.

Let me walk you through exactly how we do this for clients at AMGENT, using real strategies that actually work in the Australian retirement landscape.

What is The Foundation of a Solid Retirement Income Portfolio in Australia?

Before you buy a single investment, you need to know three numbers. Not vague estimates. The actual numbers.

Number 1: Your Essential Expenses
This is the non-negotiable stuff—rates, insurance, groceries, utilities, health costs. The amount you need every year just to maintain your standard of living. For most of our clients, this sits somewhere between $60,000 and $100,000 annually.

Number 2: Your Discretionary Spending
Holidays, dining out, hobbies, helping the grandkids. The stuff that’s flexible—you can dial it up in good years and pull back in tough ones. Usually another $20,000-$40,000 for comfortable retirees.

Number 3: Your Total Super Balance
Knowing whether you’ve got $800,000 or $2.5 million dramatically changes your strategy. It determines your asset allocation, your drawdown approach, and frankly, whether you need to be conservative or can afford to take some growth risk.

Here’s the thing most people get wrong—they focus on returns first. That’s backwards. You start with income needs, then build a portfolio that delivers that income sustainably. Returns are just the mechanism, not the goal.

What are The Core Components of an Retirement Income Portfolio in Australia?

After working with Colonial First State, CBUS, and HOSTPLUS, and now building portfolios for dozens of retirees through AMGENT, I’ve settled on a framework that works consistently well in the Australian context.

1. Cash Buffer (2-3 Years of Expenses)

This is your insurance policy against sequence risk—which we covered in my last article. You hold 2-3 years of living expenses in cash or cash-like investments.

For a client needing $80,000 annually, that’s $160,000-$240,000 in:

• High-interest savings accounts (currently around 4.5-5%)
• Cash ETFs like Betashares AAA (which holds bank deposits and pays monthly interest)
• Term deposits with staggered maturities

Why? Because when the market crashes—and it will crash at some point during your 20-30 year retirement—you’re not forced to sell growth assets at a loss. You draw from the buffer, wait for recovery, then replenish it when markets rebound.

I’ve seen this save clients hundreds of thousands. The bloke who retired in early 2020 with a proper cash buffer? He rode out COVID without selling a single share at the bottom. The guy who retired in 2019 without one? He locked in losses that he’ll never recover.

2. Core Income Assets (40-50% of Portfolio)

This is where you generate the bulk of your reliable Retirement Income Portfolio in Australia, we’ve got a massive advantage over most other countries—franking credits.

Australian Dividend Equities:
The ASX currently yields around 3.8% in dividends, but with franking credits (about 1.5%), total yield jumps to over 5.2%. If you’re in pension phase, that income is completely tax-free, and you still get the franking credits refunded by the ATO.

That’s extraordinary. Show me another developed market where retirees get 5%+ tax-free income.

Specific holdings we might use:

• Vanguard Australian Shares High Yield ETF (VHY) – Targets high dividend payers, currently yielding around 5-6% including franking
• Commonwealth Bank (CBA) – Reliable dividends, defensive earnings
• Transurban (TCL) – Infrastructure, monopoly assets, predictable income
• Wesfarmers (WES) – Diversified earnings, consistent dividend growth

The key is focusing on companies and ETFs with a history of maintaining or growing dividends, not just chasing the highest current yield. High yield often means high risk.

3. Growth Assets (30-40% of Portfolio)

Here’s where people get nervous in retirement. “Should I still be in growth assets at 65?”

Yes. Absolutely yes—unless you’ve got a $5 million super balance and only need $80k a year.

Why? Because you’re likely going to live another 25-30 years, and inflation will erode your purchasing power by 40-50% over that period. If you go 100% defensive, you’re guaranteeing you’ll run out of money or significantly reduce your lifestyle in your 80s.

Global Diversification:
Don’t just invest in Australia. Our market is 2% of global equity markets and heavily weighted to financials and resources.

We use:

• Vanguard MSCI International Shares ETF (VGS) – Gives exposure to Apple, Microsoft, Amazon, global growth without home bias
• Vanguard Diversified Growth ETF (VDHG) – 70% equities, 30% bonds, auto-rebalancing
• Selective international healthcare and technology exposure for long-term growth

Asset Allocation by Age:
This isn’t one-size-fits-all, but here’s a rough guide we use:

• Ages 60-65: 60-70% growth, 30-40% defensive
• Ages 65-70: 50-60% growth, 40-50% defensive
• Ages 70-75: 40-50% growth, 50-60% defensive
• Ages 75+: 30-40% growth, 60-70% defensive

These aren’t rigid. A 68-year-old with $3 million can stay more aggressive than a 62-year-old with $900k.

4. Defensive/Fixed Income (10-20% of Portfolio)

This isn’t about chasing yield—it’s about stability and reducing volatility.

Options include:

• Australian government bonds (currently yielding 3.5-4.5%)
• Corporate bond ETFs
• Defensive hybrid securities
• Some exposure to gold (5-10%) as portfolio insurance

Bonds have had a rough few years, but they still serve a purpose in retirement portfolios—they zig when shares zag, providing stability during equity market downturns.

How do I Make My Retirement Income Portfolio in Australia Tax-Efficient? Super vs. Non-Super

This is where Australian Retirement Income Portfolio planning gets sophisticated and where proper advice pays for itself many times over.

Account-Based Pension (Inside Super):
Once you hit preservation age and meet a condition of release, moving super into pension phase is a no-brainer:

• 0% tax on investment earnings (vs 15% in accumulation)
• 0% tax on withdrawals
• You still get franking credits refunded
• Minimum drawdown requirements (5% at age 65-74)

Non-Super Investments:
For clients with balances above $1.9 million (the current transfer balance cap), or those who want flexibility before preservation age, we also structure portfolios outside super.

Why hold assets outside super?

• No minimum drawdown requirements (flexibility)
• Access before preservation age
• Estate planning benefits (some assets pass outside super death tax)
• CGT discount on assets held 12+ months (50% discount)
• Division 296 considerations (coming July 2026)

Division 296 super tax Impact:
From July 1, 2026, if your total super balance exceeds $3 million, you’ll pay an additional 15% tax on earnings above that threshold. For clients approaching or over that limit, strategic use of non-super investments becomes critical.

We’ve been helping clients model whether to:

• Stop contributing to super and build non-super portfolios
• Draw down super more aggressively to stay under $3M
• Use spouse contributions to split balances
• Structure investment property or other assets outside super

It’s complex, and it’s individual. But getting it right can save six figures in tax over a retirement.

What about Income Layering? The AMGENT Approach

Here’s how we actually construct income for a typical client—let’s say a 64-year-old business owner with $2 million in super who needs $100,000 annual income.

Layer 1: Age Pension (If Eligible)
Even with $2M in assets, depending on your situation, you might get a part Age Pension (currently $29,754 for singles, $44,855 for couples). We optimize asset structuring to maximize entitlements where appropriate.

Layer 2: Super Pension Minimum Drawdown
At 65, minimum drawdown is 5% = $100,000. This covers the income need, but we’re drawing entirely from super. Not ideal long-term.

Layer 3: Dividend Income (Inside Super, Pension Phase)
If the $2M portfolio yields 4.5% (conservative with franking), that’s $90,000 in income generated without touching capital. This is sustainable.

Layer 4: Strategic Capital Drawdowns
In years where markets are up 15-20%, we take some profits, rebalance, and potentially draw more. In down years, we draw less and rely more on the cash buffer.

Layer 5: Non-Super Income (If Applicable)
Rental property income, part-time consulting, investment income from non-super portfolios.

The art is balancing these layers to minimize tax, maximize sustainability, and maintain flexibility.

Common Mistakes I See building Retirement Income Portfolio in Australia (And How to Avoid Them)

Mistake #1: Going 100% Income, Zero Growth
I’ve seen retirees go entirely into term deposits and dividend stocks, then wonder why they’re struggling at 80 when inflation’s eaten 40% of their purchasing power. You need growth assets.

Mistake #2: Chasing Yield
That stock yielding 9%? There’s a reason. High yield usually means high risk—capital erosion, dividend cuts, or both. Sustainable yield beats high yield every time.

Mistake #3: No Cash Buffer
Retiring with 100% invested in equities is Russian roulette. You’re hoping the market doesn’t crash in your first 5 years. Hope isn’t a strategy.

Mistake #4: Ignoring Franking Credits
International investors don’t have this gift. Australian retirees do. If you’re in pension phase and not optimizing for franking, you’re leaving money on the table.

Mistake #5: Set-and-Forget
Your retirement portfolio isn’t a crockpot. It needs annual reviews, rebalancing, and adjustments as your age, health, and market conditions change.

Real Example: How We Built a Retirement Income Portfolio in Australia for a Client

Client Profile:

• Age: 63 (recently retired)
• Super balance: $1.8M (moved to pension phase)
• Annual income need: $90,000
• Risk tolerance: Moderate
• Health: Good, family history of longevity

Portfolio Construction:

Cash Buffer (15%): $270,000

• $150k in high-interest savings (ING, Macquarie)
• $120k in Betashares AAA cash ETF

Australian Income Equities (35%): $630,000

• $250k VHY (Vanguard High Yield)
• $150k CBA shares
• $120k Transurban
• $110k Wesfarmers

International Growth Equities (30%): $540,000

• $400k VGS (Vanguard International)
• $140k healthcare and tech sector exposure

Defensive Assets (20%): $360,000

• $250k Australian government bonds
• $60k gold ETF (portfolio insurance)
• $50k corporate bond ETF

Expected Income:

• Dividends/distributions: ~$75,000 (4.2% yield with franking)
• Cash buffer interest: ~$12,000
• Age Pension (part): ~$8,000
• Total: ~$95,000 (meets need without touching capital)

In good years (market up 10%+), we take profits and top up the cash buffer. In down years, we draw from cash and let equities recover. Five years in, this client’s portfolio is now at $2.1M despite drawing $90k annually—because the growth assets did their job.

Your Next Steps

Building a Retirement Income Portfolio in Australia isn’t something you do once and forget. It’s a living system that needs to adapt as you age, as markets change, and as your life circumstances evolve.

If you’re within 5 years of retirement, or you’ve recently retired and you’re sitting on a lump sum wondering how to turn it into reliable income for the next 30 years, don’t wing it. The cost of getting this wrong—running out of money at 82, or living like a pauper when you’ve got $2M in the bank—is too high.

We’ve built dozens of these portfolios for Melbourne business owners, professionals, and pre-retirees. I’ve seen what works and what doesn’t, both in my years with Australia’s largest super funds and now in the trenches with real retirees managing real money.

The difference between a well-structured retirement income portfolio and a thrown-together collection of investments? It’s often $500k-$1M over a 25-year retirement. That’s holidays with grandkids, healthcare when you need it, and peace of mind that you’re not going to outlive your money.

Let’s build yours properly.